Mark Cuban recently bought a mobile home park and a strip club in a town called Mustang, Texas. In so doing he became the latest high-profile person or group to test out the “trailer park” industry. Recent entrants have included the Carlyle Group (the nation’s largest private equity group), the County of Singapore, Blackstone, and Brookfield (a Canadian apartment REIT). So why are these investors buying mobile home parks after a half-century of ignoring the industry?
They appreciate the power of megatrends and being on the correct side of them
Sophisticated investors understand the power of going with the flow concerning U.S. megatrends. These massive forces include:
- Stagflation (the mixture of high inflation and a sluggish economy which favors real estate)
- The Great Migration (Americans moving from urban centers to suburbs and exurbs)
- The Great Resignation (household units that seem to be re-sizing into lower incomes)
There are no U.S. megatrends that do not favor the affordable housing industry.
They understand the concept of timing when buying assets
While mobile home parks have been around since the 1950s, nobody ever paid them any attention as rental properties. As a result, it’s the least consolidated segment of American real estate – roughly only a third as consolidated as self-storage, which is twenty years younger as an asset class. Nationwide lot rents are only around $280 per month while apartment rents average around $1,400. Buying mobile home parks right now signals buying at the “bottom” while most other real estate niches are currently at historical highs.
They know that the current U.S. economy is about to enter a recessionary period like no other
Most economists predict the next major U.S. economic recession will occur in 2022 or 2023. This is simply the product of looking at graphs of historical cycles. With 2008 being the last major recession, it’s well beyond the normal time for a repeat. Covid was not that recession but merely what probably leads to the downturn thanks to the supply-chain issues. American financial markets are massively overvalued with the stock market at all-time highs, must of which has been accomplished with rampant money printing. Affordable housing, on the other hand, is a necessity which is contrarian and actually increases in demand and value as the economy falls apart. This was tested back in 2008, in which mobile home park rents and values increased significantly during the Great Recession.
Conclusion
Mark Cuban is just another in a long line of high-profile investors getting into the mobile home park sector. There will be many others in the future. Mobile home parks are quietly getting appreciated by top investors but it will take a while for the mainstream investing public to follow suit.